Transactions that
Affect Owners
Investment, Cash,
and Credit
Pg. 51-55
Investments
›  Assets
›  Generally
long-term in nature
›  Not intended to be converted to cash or
to be used in the normal operations of the
business.
Business Transactions
›  Identify
accounts affected
›  Classify the accounts affected
›  Determine the amount of increase or
decrease for each account affected.
›  Make sure the account equation remains
in balance
Investments by Owner #1
› Maria
Sanchez took $25,000 from
personal savings and deposited that
amount to open a business checking
account in the name of Roadrunner
Delivery Service.
Analysis
›  Identify
›  Cash
In Bank and Maria Sanchez, Capital
›  Classify
›  Cash
In Bank is an ASSET
›  Maria Sanchez, Capital is OWNER’s EQUITY
›  +/›  Cash
In Bank is increasing by 25,000
›  Maria Sanchez, Capital is increasing by 25,000
›  Balance
›  Yes
Investments by Owner #2
› The
owner, Maria Sanchez, took two
telephones valued at $200 each
from her home and transferred
them to the business as Office
Equipment.
Cash Payment #3
› Roadrunner
issued a $3,000 check
to purchase a computer system.
Credit Transaction #4
› Roadrunner
bought a used truck on
account from North Shore Auto for
$12,000.
Credit Transaction #5
› Roadrunner
sold one telephone to
Green Company for $200 on
account.
Credit Transaction #6
› Roadrunner
issued a check for $350
in partial payment of the amount
owed to its creditor, North Shore
Auto.
Credit Transaction #7
› Roadrunner
received and
deposited a check for $200 from
Green Co. The check received is full
payment for the telephone sold on
account in Transaction #5.
Problem 3-2 page 56
Determining the Effects of Transactions on the
Accounting Equation
First…
›  Examine
the chart of accounts.
Assets
›  Cash
in Bank
›  Accounts Receivable (A/R)
›  Computer Equipment
›  Office Furniture
Liabilities
›  Accounts
Payable (A/P)
Owner’s Equity
›  Jan
Swift, Capital
Transaction #1
›  Jan
Swift, owner, deposited $30,000 in a
checking account to start a business,
Word Service.
Transaction #2
›  The
owner transferred to the business a
desk and chair valued at $700.
Transaction #3
›  WordService
issued a check for $4,000 for
the purchase of a computer.
Transaction #4
›  The
business bought office furniture on
account for $5,000 from Eastern Furniture
Company.
Transaction #5
›  The
desk and chair previously transferred
to the business by the owner were sold on
account for $700.
Transaction #6
›  WordService
wrote a check for $2,000 in
partial payment of the amount owed to
Eastern Furniture Company.
Practice Problem
First…
›  Examine
the chart of accounts.
Assets
›  Cash
in Bank
›  Accounts Receivable (A/R)
›  Computer Equipment
›  Office Furniture
Liabilities
›  Accounts
Payable (A/P)
Owner’s Equity
›  Jan
Swift, Capital
Transaction #1
›  Jan
Swift invested $5,000 into her business,
WordService.
Transaction #2
›  WordService
purchased a new computer
from Computers R Us, on account for
$500.
Transaction #3
›  Jan
Swift, transferred a desk for $200 to
WordService.
Transaction #4
›  WordService
decided to purchased
additional office furniture using a check
for $300.
Transaction #5
›  WordService,
sold computer equipment
on account for $100.
Transaction #6
›  WordService,
wrote a check for $200 for
partial payment for the new computer
owed to Computers R Us.